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Many of the family businesses in India that were incorporated in the
1980s and 1990s are now 25 to 30 years old. Their promoters would be close to
hanging their boots and passing on the baton to a worthy successor who would
keep the family values intact while ensuring sustainable growth for the
company. But who would be this worthy successor? Many of the millennials or
xennials prefer to start their own entrepreneurial ventures or pursue other
interests. This leaves the founder with no option but to look outside the
family.

Culture- overlooked factor

Education, proven track-record, vision and strategy for the company
are all important in identifying a successor; one issue which is often
overlooked is the match between designated successor’s values and the culture
of the organization. When companies are newly established and smaller, the
founders’ values, traditions, beliefs and style translate into the culture of
the firm. This culture becomes the unwritten but well-understood code of
conduct throughout the firm. The founders tend to retain the same culture even
after becoming a large organization. Succession in such organizations, with
promoters who have overarching personalities is always tough. Due diligence of
the successor’s values and its fit with the organizational culture is critical
to the continued success of the firm.

Cultural Due Diligence

There are two ways to look into the successor’s cultural fit with
that of the firm. Either the new leader’s values should match with the existing
culture of the organization. Or, the potential successor’s leadership style
should be strong enough to change the culture of the organization, if that is
necessary for the well-being of the firm in the changing business environment.

The best way to deal with the issue of culture is for the board of
directors to do a cultural due diligence of the organization and match it with
the value system of the potential leaders. To determine what should be the
organizational culture, an audit of the existing culture and then an assessment
of the required culture needs to be undertaken. The board of directors would
play an important role in facilitating this exercise with the help of company
executives or an independent consultant. They also need to decide which core
values need to be retained and what new values need to be inculcated for the
company to emerge stronger. Based on this assessment, the potential successors
need to be evaluated for a cultural fit.

The founders/promoters/board need to be clear about what they want
for the company and from the successor. At the Tata group, after an initial
failure, Ratan Tata made up his mind to continue with the culture that he
created and appointed an insider.

Allowing Change in Culture

In the event the successor attempts to change the culture, the
outgoing leader should be willing to stand aside and allow it. When Ratan Tata
took over Tata group, the group companies were run by independently minded
satraps who treated their respective companies as their personal fiefdom. Ratan
Tata took a strategic decision that to operate in a free economy and to keep
the group cohesive, it was important to remove a few of them and he was strong
enough to do so in boardroom battles. He brought in a culture wherein it was
emphasized that each company was part of a larger group. Also, JRD Tata, the
predecessor of Ratan Tata did not interfere with Ratan Tata’s functioning.

On the other hand, in the case of Infosys, the founders of Infosys
who practised frugality even in their personal lives was a stark contrast with
the background of Vishal Sikka. Sikka was immersed in Silicon Valley work
culture- that amongst others (especially innovation) rewarded the top
management very well, much higher than an average employee, going against
founders’ idea of ‘compassionate capitalism’. The differences in backgrounds
and values resulted in the well-known ouster of Sikka.

Conclusion

It is important to remember that the purpose of cultural due diligence
is not to eliminate culture clash- a likely event even in the best of
circumstances. Nor is the purpose to find a perfect fit between the
organization and the leader. The purpose is to have a fair amount of
culture-value debate about what is best for the organization under the new
leader, for the promoters to be prepared and to prepare the organization for
what is to be expected from the successor.

Former US President George W Bush spoke about
democracy and free trade at the ‘Spirit of Liberty: At Home, In the World’,
event in New York on October 19 (goo.gl/or7NLi). He spoke of the values that
made the US great and said, “conflict, instability, and poverty follow in the
wake of protectionism”. On Monday, the US Citizenship and Immigration Services
released a memo that ordered its officers to apply the same level of scrutiny
to an H-1B extension request as they had to the initial application, consistent
with policies “that protect the interests of US workers”.

Amid these stricter H-1B visa norms and US
President Donald Trump’s protectionist agenda, there is an ongoing debate if
the Indian government should also put some form of restrictions on US
companies. This leads to a broader question — when our trading partner engages
in protectionism, then is eye for an eye a good idea?

Protectionism refers to restrictions on foreign
goods and capital, including human capital, to reduce or eliminate their access
to domestic markets. Countries throughout history have utilised this as a tool
under the misguided belief that prosperity comes from helping domestic firms
against competition from foreign markets. While protectionism protects domestic
firms from outside competition, it results in inefficient allocation of
resources, higher cost for consumers and possible non-fulfillment of demand. On
the contrary, free trade allows for goods and capital to flow into businesses
where the firms have a comparative advantage.

Competition frees up capital that is tied up with
firms that are not good at what they do, either in terms of quality or
efficient use of resources. Foster Competition Hence, competitive forces, be it
international or domestic, lead firms to become more efficient through
consolidation or development of technology and skills.

This, in the longterm, is beneficial to the firm,
the customers and the country. So should protectionism be answered by
protectionism? Proponents claim that subsidies by international governments are
unfair and, hence, we must do something to protect our businesses. However, eye
for an eye strategy in this case leads to a worse deal for domestic consumers
who could have enjoyed cheaper products leading to greater discretionary income
that can be re-invested into the economy. In addition, subsidies, tax breaks
etc. to some, and not to others, exist even within domestic markets.

Furthermore, in the extreme case where an entire
industry is displaced, the freed-up capital would be put to its highest valued
uses. Any unemployment caused will only be temporary in nature. While painful
in the interim, it would lead to better outcomes in the medium to long term.

In the early 1990s, there was a lot of opposition
to economic reforms from the informal group of Indian industrialists known as
the ‘Bombay Club’. Perhaps they thought, similar to several countries
implementing protectionist measures nowadays, that opening up of borders would
harm their bottom-line, expose them to competition from companies with better
technologies that came from countries that had enjoyed advantages of free
market much longer than they had. Avoid A Counteroffensive Their resistance was
unfounded. Indian businesses did very well and contributed significantly to the
growth of India ‘even after’ liberalisation.

In fact, after markets were opened to foreign
capital and goods in the 1990s, founding of new businesses — both by business
groups and stand-alone firms — increased tremendously as shown in a research
paper by Murali Chari and Jaya Dixit (‘Business Groups and Entrepreneurship in
Developing Countries After Reforms’, Journal of Business Research, 2015,
goo.gl/FZDx3V).

When free markets are allowed to function they
increase the size of the pie that can be shared leading to benefits for
domestic businesses, consumers and the nation. Even if a country erects trade
barriers, responding in kind would not be beneficial. For example, in the
current case of H-1B visa restrictions, it would not be in India’s benefit to
respond with trade and capital restrictions on US companies. One likely
scenario due to the H1B restrictions and other US protectionist measures is
that US companies may feel pressured to disaggregate their value chains leading
to setting up of more offices, R&D centres, manufacturing facilities
abroad.

In such a scenario, countries that provide the most
pro-business environment will be benefitted. This is only one scenario. But
there could be other scenarios where US protectionism is beneficial for other
countries, but not if they respond with protectionism. So then is the
protectionist rhetoric a good idea to dissuade other countries from adopting
protectionist policies? For example, is it a good strategy politically to have
a rhetoric of tit-for-tat with respect to protectionism, in order to put
pressure on US policymakers while having no intention of putting these
restrictions in place?

This is a slippery slope, as any policy rhetoric is
also a negative signal to US companies that may be trying to find new home for
themselves and searching for new markets. Two wrongs do not make a right and
neither does answering protectionism by protectionism. The costs of
protectionism are far greater, even if not obvious, than the transitory costs
of moving to a free market. Free trade works regardless of whether any other
country engages in it.

The
role of the family business leader depends on the background of the family, its
structure and the conditions under which he assumes that role. Someone who
becomes the leader during times when the family and its business is struggling
may face very different kinds of challenges than one who becomes a leader in a
planned manner. The challenges also depend upon the preparedness of the leader,
turbulence or stability in business and the support of the family as well as
the business team. While the role of the leader in the business and the family
is shaped by the circumstances, almost all leaders must learn to un-PLEASE to
ensure continued success.

·Please: Allocating resources in a way that takes care of the necessities
without demotivating the members, and at the same time keeping the
respectability of the family and business intact. Many a times the family
members may not be pleased with the decisions, but if it is in the long-term
interest of the business and it must be taken, the leader should be able to
convince the family members.

·Loneliness: The authority that comes with being a leader often comes at
the cost of loneliness, especially in the case of founder-promoters. The
loneliness of the leader would prevent divergent viewpoints coming from
different family members and next-generation members that often result in
innovation, new venture creation and critical review of resources allocation to
adapt to strategic changes in family firms.

·Entitle: In financially sound business families, it is often seen that
the members or the next generation feel entitled to the business. This is
especially not right for companies that have external shareholders. The
competitive environment and increasing shareholder activism would not allow
such entitlement. A recent example is the attempt by the Singhania family
factions to get the prime property owned by Raymond Ltd. at throwaway prices
that was defeated by the non-promoter shareholders.

·Assume: The “license raj” provided continued success for family
businesses due to limited competition in the markets. Hence the leaders assume
successful business is in their genes. Such assumptions don’t suffice in a
competitive environment. Many top business houses that were a part of the
Sensex in 1990 are no longer amongst the top, like Thapar, Mafatlal, Modi,
Walchand and Kirloskar.

·Settle: During the days of closed economy, business was predictable to a
greater extent. However, recent years indicate that innovation is key to
survival. Companies that become complacent soon turn irrelevant. Till 2014,
Micromax was a leader in low-priced phones in India. It had a good distribution
model that helped it enjoy a lead. In the past two years, Chinese firms like
Xiaomi have dealt a massive blow to it with innovative designs, reasonably good
quality phones, high-end configurations and innovative distribution at low
costs.

·Establish: In family-owned businesses, the leaders have established
authority over the professional top management. The leader’s decision is final,
even if it is wrong in the business perspective. Often the Board of Directors
too falls in line with the leader for fear of upsetting him. A good leader is
one who is able to put processes in place for fair and informed decisions to be
made.

The
roles and challenges of each leader may differ. However, what cannot be
questioned is that he must work for the welfare of the entire family and the
long-term interests of the organisation. Whether the decisions are business- or
family-related, the leader must be fair to all, there should be no imbalances. In
the process, they may end up displeasing a few people. As long as it is in the
long-term interest of the family members and the business, it is ok to
un-please at times.

There are
family firms that are owned and managed by family members and have survived
many generations, like the 120-year-old, $4.1 billion in revenues, Godrej
Group. There are family firms that did not survive transition of leadership to
the second generation of family members like in the case of United Spirits.
Vijay Mallya destroyed the socio, emotional and economic wealth created by his
father Vittal Mallya.

There are
family firms that professionalised the management and survived, like the Aditya
Birla group and the Tata group. These firms are run by capable non-family
business heads or CEOs while the strategic direction for the entire group is provided
by the group Chairman, Kumar Mangalam Birla (family member) in the case of the
Aditya Birla Group and Natarajan Chandrasekaran (non-family professional but a
Tata group loyalist) in the case of the Tata group. Lastly, there are family
firms that passed on key leadership positions to only family members and yet
did well. Examples include the Reliance group, Bajaj Group and HCL group.

It is very
difficult to generalise and say that dynastic succession is bad for family
firms. In the end, firms that are well-governed and professionally managed,
irrespective of being family-managed or not, are the ones that are sustainable.

It is easier
for the incumbent family business leader to appoint someone from the family as
his successor, as the family member is believed to be entrenched in the same
values and hopefully have the same vision for the company that the incumbent
leader does. There would be no cultural misfit, which is possible when hiring a
professional CEO as happened in the case of Infosys. While Vishal Sikka was
considered to be capable, compatibility with the culture and values that were
set by the founders of Infosys became an issue.

While values
and culture are important, they alone cannot create and maximise shareholders’
wealth. Passion, qualification and capability to handle the business are
important.

The scion
should be professionally qualified and be able to retain the “founder’s
mentality” or entrepreneurial spirit that had helped build the business in the
first place. The successor should also be capable and mature enough to handle a
leadership position, understand the importance of good governance, and navigate
the firm to greater heights. If the family scion lacks these traits, it is
better to look outside for better candidates to lead the company.

Shrinking
family size, children brought up in an open environment where they are aware,
independent and have interests different from their family business, has forced
many family businesses to look for a CEO outside the family. There are two
options — choosing someone who has grown up in the ranks in the company, shares
the vision of the founder and understands the culture of the company, and
second, someone from outside the company who has proved his mettle elsewhere.

The problem in
the first case is that the chosen successor has always worked under the shadow
of the family business leader and may not be able to handle the various ups and
downs if the family business leader is not available to guide, or is there as a
shadow.

The problem in
the second case may be lack of shared vision and disruptions that may not
receive the approval of the family, even if they are good for the firm in the
long run.

Hence, the job
of finding a non-family CEO is not easy. But it must be done. The earlier the
search for a successor begins, the better it is for the family and the firm.
The chosen successor should be allowed to work alongside the family business
leader for a few years and get acquainted with the vision of the founder, get
acclimatised to the firm’s culture, understand the governance mechanisms,
discuss the changes that are needed for improvements in processes, systems and
structure of the firm, and prepare to do it alone when the transition happens.
Or, there should be a clear induction and detachment process developed and
implemented efficiently.

The family
business leader should be prepared to truly retire once the transition happens.
Interference and encroaching upon the decisions of the CEO later on would lead
to a lot of confusion and creation of “no-man’s land”, that is, areas where no
one takes a decision as the roles are not clear.

The debate is
really about competence versus entitlement. Entitlement leads to destruction
whereas competence enables the successor, family or non-family, to become the
steward of the company, working towards the benefits of all stakeholders and
embracing the objectives of the firm. Therefore, dynastic succession is not
necessarily bad as long as it is accompanied with merit.

Traditional
social structures continue to limit progress at the grassroots.

In a cabinet reshuffle on
September 4, Nirmala Sitharaman became the Defense Minister of India. The
elevation of a woman was a positive signal towards the goal of achieving gender
parity in India. Sitharaman and two others, Sushma Swaraj (External Affairs)
and Smriti Irani (Information & Broadcasting), are responsible for three of
the most important portfolios in the Narendra Modi-led government.

Women are under-represented in
politics across the world, even as research has found that women in policy
positions are more sensitive to the needs of the society and improve governance
standards.

In a broader context, gender
parity remains elusive.

In India’s historically agrarian
society, at least until the service sector started to grow much faster, women
contributed significantly to farm production. Beyond farming and allied
activities, women mostly stuck to entrepreneurial pursuits like making snacks
and pickles, running beauty parlors, tailoring, and teaching at home. These
areas were seen as extensions of their roles at home, required low financing,
and allowed for flexibility to stay at home and manage home as well as work.
These businesses typically remained small. The motivation for working was to
enhance the family income or attain a certain degree of financial independence,
or it was out of compulsion.

Restrictive home and workplace
structures, and societal and cultural contexts, play an important role in
women’s decision to participate in the workforce. There is evidence to show
that increased participation of women in the workforce results in better
economic growth. However, the converse may not be true.

The economic liberalization in
1991 and the high GDP growth rates of the last decade did not really improve
the status of women in India. India ranked 125th out of 159 countries in the
Gender Inequality Index of the United Nations Development Report of 2016. The
country had a pitiful score of 0.12 out of 1 on economic empowerment as per the
gender equity index (2012), and only 27% of women above age 15 participate in
the labor force.

“A Gargantuan Task”

Dr. V.P. Jyotsna, an
obstetrician, expert in gynecological endoscopy and high-risk pregnancy, the
Birthplace, says, “A majority of rural women are subjected to lack of
education, child labor, early marriages and early childbearing, inadequate
health care, and an abject lack of awareness regarding health and nutrition.
Various social stigmata – caste based, gender based and religion based –
contribute to the lack of empowerment of women in India. To try to empower and
strengthen the role of women, one needs to untangle a complex web of age-old
traditions. That’s a gargantuan task.”

Governments have taken several
steps over the years for attaining gender parity, notwithstanding many that
were not taken. For example, changes in law like the daughter's right to
property and the duty of a daughter to take care of parents, the Mahatma Gandhi
National Rural Employment Guarantee Act that stated that men and women be paid
equally and that child care facilities be made available on site, have been
introduced. But they were not enough to turn the tables on tradition.

Some organizations are taking
purposeful steps to bring down the glass ceiling and make workplaces
women-friendly. In fact, many of the traditional businesses are now embracing
women from their families as leaders of their businesses. Many companies are
electing women to boards to bring in a diversity of views.

Day-to-Day Obstacles

The biggest challenge is in the
micro environment, the mindset of the immediate circle of people whom every
woman encounters. While many countries have gender parity issues, the problem
is amplified in India due to deep-rooted socio-cultural attitudes. In a
male-dominated society, family support for men is taken for granted; for women,
it needs to be sought.

Familial duties primarily fall on
the women. They are born with this sense of responsibility, and the environment
around them only exacerbates it. While family and society impose restrictions,
many women self-impose restrictions too, on travel and extended working hours,
due to a sense of responsibility that they are not able to let go.

A very small percentage of women
have achieved the pinnacle of success and become role models for the rest of
the Indian women. Dr. Jyotsna says, “It's commendable that ‘some’ women have
been blessed enough to escape discrimination at various levels or successfully
shaken it off in such a way that they have managed to be on par with their male
colleagues.

Inconsistent Progress

“Although their successes are
laudable, it is in no way a reflection of the plight of the majority of the
women in India. Definitely the proportion of women moving ahead in terms of
education, awareness and financial independence is increasing, but not
uniformly across all strata. These women who advance in life and depict success
stories in the public eye do serve as inspiration to many. Yet the real change
is to be seen in the men.”

With women like Sushma Swaraj,
Nirmala Sitharaman and Smriti Irani as lawmakers, there is hope that
policymaking becomes sensitive to the needs of women. However, in spite of
being an eternal optimist, I am reminded of George Orwell’s “Animal Farm”:

To the horror of the other
animals, the pigs begin to walk on two legs, and the sheep drown out their
protests with their newly learned slogan, Four legs good, two legs better . . .
There is only one commandment now: “All animals are equal but some animals are
more equal than others. As the animals peep in the farmhouse windows, to their
amazement they can no longer tell who are the pigs and who are the humans.”

The zeitgeist of deep-rooted
tradition, religion and social customs cannot change unless the men equally
participate in the process by taking collective responsibility of the household
work and believing in the cause of gender parity. Continuous interventions at
the micro level by men in the lives of women will go a long way to achieve the
gender parity that women envision.

Tuesday, September 26, 2017

Indian family businesses flourished and
contributed significantly to the growth of the economy in the post
liberalisation era

A study conducted by the Thomas Schmidheiny Centre
for Family Enterprise at the Indian School of Business (ISB) reveals that
liberalisation led to the rise of Standalone Family Firms (SFFs) in India and
they were the primary drivers of accelerating the growth of the Services Sector
in the country.

Authored by Dr. Nupur Pavan Bang and Professor
Kavil Ramachandran of the Thomas Schmidheiny Centre for Family Enterprise at
ISB and Professor Sougata Ray of IIM Calcutta, the study chronicles the
evolution of family businesses in India since the initiation of liberalisation
in the country. A first- of- its kind, the study traces the progress of Indian
family businesses over a 26 year period from 1990 to 2015. The authors studied 4,809 firms listed on the
Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) of India as a
part of the study.

The year 1991 ushered in a new dawn in the Indian
economy with sweeping reforms across sectors. There were widespread
apprehensions about the capabilities of the family owned and managed businesses
to withstand the pressure of the newly created “freedom”. However, the study finds that not only did
the family firms withstand the new rush of competitive forces in the economy,
but also adapted to the changing business environment.

Based on their shareholding and management control,
the companies were classified into two categories: Family Businesses (FBs) and
Non-Family Businesses (NFBs). Family businesses were further classified into
Family business group affiliated firms (FBGFs) and Standalone family firms
(SFFs) and NFBs were further classified into State-owned enterprises (SOEs),
Multinational subsidiaries (MNCs), Other Business group affiliated firms
(OBGFs) and Standalone non-family firms (NFFs).

Key Findings of the Study:

The rise of standalone family firms: Close to 73 percent of the listed standalone
family firms were incorporated in the period 1981 to 1995. In comparison, only
49 percent of the business group affiliated family firms were incorporated in
the same period. As the pace of reforms picked up with liberalisation, more and
more standalone family firms started to leverage the changing business
landscape. While the family business group firms did take advantage of the
reforms in the early stages, it was the standalone family firms that emerged as
the single largest ownership category in terms of number of firms.

The growth in the number of standalone family firms
was driven primarily by the new firms in the services sector. Wholesale trade,
financial services and Information Technology were the most favoured industries
for the listed standalone family firms. This was reminiscent of the rising
contribution of the services sector to the GDP.

Growth of the Services sector: In the
financial year 1990, services sector accounted for about 45 percent of India’s
GDP while its contribution was close to 60 percent in 2015. Traditionally, family businesses were strong
in manufacturing but they showed an equal penchant for the services sector,
when the opportunities arose. But,
standalone family firms were the fastest growing category in the services. It
was because of their entrepreneurial acumen that India’s services sector has
grown so well in recent years.

While manufacturing and services contributed almost
equally to the total assets for family firms, in the case of non-family
businesses, the services sector accounted for more than 90 percent of their
total assets. Amongst the non-family firms, the State-owned enterprises
dominate the services sector with large assets in the banking sector, whereas,
the sector accounted for just 18 percent of the total assets of multinational
companies.

Family Businesses grew faster and contributed
more to the GDP and Exchequer: The study shows that the representation of
family businesses grew at a much faster rate than the non-family businesses. In
fact, evidence suggests that removal of restrictions and controls in the
liberalised era actually unleashed their entrepreneurial spirit. In 1990, family firms represented 15.7
percent of the GDP in terms of their total income, whereas by 2015, they
represented 25.5 percent of the GDP. In comparison, Non-family firms formed
20.5 percent of the GDP in 1990 and 26.6 percent in 2015.

Family firms accounted for 28 percent of all
indirect taxes and 18 percent of all direct corporate taxes in the financial
year 2015, while non-family firms accounted for 26 percent and 25 percent
respectively. Though, the pattern has oscillated over the years, overall, the
contribution of family firms has gone up from 1990 to 2015.

Asset Creation: The total assets were
highest for State-owned enterprises owing to their monopoly and massive
investment by the government, followed by business group affiliated family
firms. In 1990, family firms accounted for 24.7 percent of the total assets of
all firms in our sample. This grew to 27.7 percent in 2015. The standalone
family firms were able to grow in spite of not having the resources available
to a group affiliated firm. While the standalone family firms were large in
number [of firms], they were smaller in size. This was perhaps due to their
focus on services sector which were less capital intensive and also the lack of
resources.

Access to capital markets: The average
difference between the listing year and the incorporation year for business
group affiliated family firms was 14.76 years, whereas for standalone family
firms it was 10.01 years. The standalone family firms were probably forced to
list earlier compared to those affiliated with business groups due to the
capital constraints and limited sources of financing.

The SOEs were the last to resort to equity markets
to raise funds. The average number of years taken for SOEs to list was 34.07
years, as opposed to 14 to 17 years taken by MNCs, standalone non family firms
and other business group firms. The
study also noted that the average number of years taken for the firms to list
has been going down over the years pointing to the ease of access to capital
markets due to the regulatory changes post liberalization.

Impending succession challenges: Succession
remains the number one concern for most family businesses even today, as the
senior management comprises of family members in most cases. It needs to be
seen if the family businesses, especially the ones that are at the crossroad to
either transition to the next generation or on the cusp of making non-family
professionals their agents, survive the change.

The listed standalone family firms were younger at
an average age of 28.73 years than the business group affiliated firms. More
than 50 percent of the standalone family firms had been in existence for less
than 30 years. The first generation founder would still be actively involved in
most of these companies but many of them must be staring at a change of guard
in the near future. On the other hand, the non-family firms typically have
senior management personnel who are nominated by the board members and
appointed for fixed tenures.

The family business group firms have been around
for 38.44 years on average and the State owned enterprises have an average age
of 54.04 years. The MNCs, other business group firms and the standalone
non-family firms have 42.09, 36.9 and 35.16 years of average existence.

Conclusions

The study throws up two important developments that
are worth mentioning:

·One, the process of liberalisation in India
enabled family firms to take stock, restructure and open up new opportunities
in the services sector, thereby, increasing their contribution to the economy.

·Two, there was a wave of entrepreneurial spirit
that got unleashed due to conducive environment.

Indian family businesses have shown resilience and
have been progressed well over the years. They have increased their footprint
in the Indian economy. With better governance and more transparency, they will
only get better. Their capacity to transcend time is their greatest strength.

Monday, September 25, 2017

Indian
B-schools must have students infused with a ‘launch business’ spirit

Economic
liberalisation in 1991 triggered a spurt of entrepreneurial activities in the
country, once it was freed from the shackles of the licence-quota raj. It
became easier to raise capital through the stock­markets and there was an
influx of investment from venture capitalists. The rise of the services sector
and the internet meant that people could start businesses with lower capital
and reach the customers more easily.

Institutions
of higher education, particularly the business schools, became a breeding
ground for entrepreneurs. There was a lot of buzz regarding business creation,
yet very few became entrepreneurs. Among them, many did so if they could not
find a job that matched their education, skill and experience. Only a few
campuses made serious efforts to promote entrepreneurship as an alternative to
well-paying jobs.

Today, the
government’s Startup India programme has renewed interest in entrepreneurship.
Alongside, there are Skill India and Pradhanmantri Mudra Yojana, giving tax
incentives. According to the Randstad Workmonitor Survey, 72 per cent of the
respondents in the 25-34 age group said they would love to be an entrepreneur.
Yet, 72 per cent of the fresh graduates or post-graduates joining the workforce
do not launch business ventures. The Global Entrepreneurship Monitor Report of
2016-17 reports that India ranks 56th out of 61 countries on “Entrepre­neurship
a good career choice”.

Why don’t most
potential entrepreneurs take the plunge? Is it a fear of failure or perceived
incapability? Do our business schools prepare students for the rigmarole of
life as an entrepreneur?

Initiatives
like the Society for Entrepreneurship Educators formed by the Indian School of
Business in the early 2000s to bridge a gap between the educators (across
B-schools) and business owners-managers did not see much traction.
Entrepreneurship was not recognised as an independent discipline yet. The
faculty in most business schools was either not prepared or not incentivised to
drive entrepreneurship on campus.

Similarly,
there was little success for schools that started hubs with an objective to
bring together different stakeholders in the entrepreneurship ecosystem, such
as technology incubators, service providers, venture capitalists, mentors and
academicians. For, they were not able to integrate the various spokes in the
hub.

As a result,
frustration grows on many students who are genuinely interested in starting
their own ventures, as they do not get practical support from the ecosystem.
They either abandon the pursuit or suffer failure. As many as 90 per cent of
Indian startups fail within the first five years, says a study by the IBM
Institute for Business Value and Oxford Economics. An integrated environment
will reduce the information asymmetry, allow the schools to learn from the
experiences and experiments of others and adopt the successful ones. For example,
other business schools too can adopt the Maha Mandi event at NITIE Mumbai that
has been a highly successful model in “Sell-Think-Learn-Repeat”. Similarly,
Judge Business School at Cambridge University has a series of free evening
lectures and networking sessions.

At the
B-school level, activities, both curricular and non­curricular, that build a
wave of interest and excitement in entrepreneurship would create an ecosystem
that stimulates innovation, funds commercially viable projects and facilitates
mentorship through interactions and internships with industry leaders and other
entrepreneurs. At the city or zonal level, several B-schools should come together
under one umbrella where organisations such as The Indus Entrepreneurs (TiE)
join the journey. There can be events such as the TiE-ISB Connect that create a
platform at the regional level for encouraging entrepreneurship among the youth.
At the apex level, there should be more integrated programmes that involve
multiple agencies like the Department of Science and Technology and the
Ministry of Human Resources Development.

Integration at
various levels will start a movement for entrepreneurship that will be
effective and will lead to a variety of new initiatives at various levels.
There will be a complementary synergy thus created to help students take
entrepreneurship as a serious career option.